Monday, October 09, 2006

Procuring Cause, What’s All The Fuss About?

I recently had to help one of our Protégés navigate this very complex issue, the issue/concept of Procuring Cause.

Procuring Cause actions are, perhaps one of the most often registered complaints in real estate transactions, between Agents/Brokers. So what’s all the fuss about?

The Black Law Dictionary’s definition has been adopted by the National Association of Realtors® as the concept of Procuring Cause as it plays out in arbitration cases. The Black’s Law Dictionary definition has also been incorporated into the Realtors® Code of Ethics. You will find, in the NAR Arbitration Manual, reference to the Black’s Law Dictionary definition of Procuring Cause. The Black’s Law Dictionary definition is set in two sections or parts. The first part says of Procuring Cause: “A cause originating a series of events which without break in their continuity, results in accomplishment of a prime objective…”

In the world of real estate, at first blush, one might be predisposed to consider that this concept of, “…A cause originating a series of events which without break in their continuity, results in accomplishment of a prime objective …” shouldn’t be too difficult to establish. Not so, as you will see as we explore Procuring Cause.

The second part of the Black’s Law definition is where most of the confusion comes about. Black’s Law Dictionary goes on to say about Procuring Cause: "A Broker will be regarded as the ‘Procuring Cause’ of a sale, so as to be entitled to commission, if his efforts are the foundation on which the negotiations resulting in a sale are begun."

So how does this all play out in real life in the world of real estate? (NOTE for clarification; please understand that the terms Broker and Agent are interchangeable in this article.)

First, it’s important to understand that the NAR distills the concept of Procuring Cause to the following: ". . . for purposes of arbitration, Procuring Cause can be readily understood as the uninterrupted series of causal events which resulted in the successful transaction." In short, who or what, caused the transaction to conclude successfully? The questions that an arbitration panel would engage are which Realtor® was the most responsible for the Buyer’s decision to make an offer on the property. Therefore, that particular Realtor® would be the Realtor® with Procuring Cause.

Oooppss… not so fast. Before we get too far along, we must discuss the concept of Alienation. Alienation is interchangeable with two other words, Estrangement and Abandonment. All play a part in the concept of Procuring Cause.

The NAR Arbitration Manual states to conditions that would sustain Alienation. They are:

". . . [A] purchaser, despite reasonable efforts by the Broker to maintain ongoing contact, may seek assistance from another Broker. The panel will want to consider why the purchaser was estranged from the first Broker. .. . [T]here may be no question that there was an ongoing relationship between the Broker and the purchaser; the issue then becomes whether the Broker engaged in conduct which caused the purchaser to terminate the relationship (estrangement)."

So, what types of events could cause Alienation? Perhaps the Agent conducted himself/herself in an inappropriate manner. Did the Agent say something that was offensive to the Buyer? Did the first Agent fail to stay in contact with the Buyer after their initial visit? Were there conditions within the emerging relationship between the Buyer and the Agent that were untenable to the Buyer? Did any of these, or similar actions, activities or inactivities, cause the Buyer to seek the services of another Agent? The NAR Arbitration manual makes it very clear that estrangement can be the product of actions or words by the Realtor®.

If the arbitration panel found that the Buyer had, in fact, been estranged by the first Realtor®, the arbitration panel would determine that there was good cause for the Buyer to seek out the second Realtor®. In this instance, the first Realtor® would not be entitled to compensation because he/she would not be the Procuring Cause.

Abandonment is perhaps one of the hinge-pins of many Procuring Cause actions. For example, what if the first Realtor® showed the Buyer a home and the Buyer tells the Realtor® he is interested in the home but, before he makes an offer, the Buyer would like the Realtor® to produce a list of comparable sales for the Buyer to review. This is not an unusual request or query by the Buyer. But, what if the Buyer feels that the first Realtor® does not produce the information in a timely manner; causing the Buyer to make contact with a second Realtor® in search of the comparable information? Who do you think is the Procuring Cause, Realtor® No.1 or Realtor® No.2?

What if the second Realtor® complies with the Buyer’s wishes and subsequently writes the offer on the property? Such an action, or in this case in-action, on the part of the first Realtor® could be deemed, by an Arbitration Panel to be abandonment, thus disallowing the first Realtor® Procuring Cause and awarding the Procuring Cause action to the second Realtor®.

Here’s a real twist for you. The Buyer is shown a particular home by a Realtor®. The Buyer tells the Realtor® that he is interested in the home but cannot move forward yet because he is waiting for a raise from his employer but that the raise is about 6 months away. The Buyer tells the Realtor® not to call him and that he would be in touch with the Realtor® when he receives his raise. The Buyer’s raise comes early, about seven weeks from when the Buyer and the first Realtor® last spoke. The Buyer calls at that time but the first Realtor® had not called the Buyer because of the Buyer’s specific instructions. Has the Buyer been abandoned by the Realtor®? Probably not. The Realtor® followed the specific instructions of the Buyer. In today’s world of electronic communication, it is not difficult for an Agent to prove that he/she has maintained contact with a client electronically. Even if the Buyer has no means of electronic communication, it is good practice to send a note, card or some form of communication in an effort to continue the unbroken chain of events with the Buyer prospect. The first Realtor® could probably make an effective argument that he/she was the Procuring Cause and that there was no break in the chain of events, caused by the first Realtor®.

Arbitration panelists who listen to Procuring Cause claims are just as bewildered by the “exact” definition. However, many arbitration panelists tend to center their focus on the “uninterrupted chain of events”. Here are some thoughts from arbitration panelists from around the country: **Source Active Rain – http://www.activerain.com

**“One of the aspects they consider is whether there was a continuous chain of events. Did Agent 1 abandon the client? Did Agent 2 interfere in the relationship with Agent 1?”

Jim Lee – Realty Executives Associates Knoxville TN

**“I think the continuous chain of events thing is what usually weighs heaviest with me. Estrangement is also a big factor; did the first Realtor do something terrible enough to alienate the Buyers. Also where did Realtor #2 come from and how did they get into the act after the first Realtor.”

**“I agree with most in the continuous chain of events and emails (etc) that support this fact. I also look for what the relationship is between the Buyer and Agent 2 (relative, friend, etc). Where was this Agent 2 when the Buyer was dealing with Agent 1. Also, is there some financial consideration being paid by Agent 2 back to the Buyer. If so, the Buyer's creditability goes right in the toilet.”

As you can see, Procuring Cause issues can be very complicated. It is incredibly important that the issue of Procuring Cause be explained to your Buyer prospect at the onset of any communication between you and him/her. In today’s world of electronic communication it is even more critical than ever before to keep excellent records of your communication log between Buyer prospects. Lori and I have closed many transactions over the Internet in the last decade. We use some of the most state-of-the-art tracking software available today. And while it would be unlikely that we would ever lose a Procuring Cause challenge, we try to head off any possibility of such an event by explaining Procuring Cause to our clients. And if you think it’s difficult for the real estate community to ferret out all of the nuances of Procuring Cause, it is much more confusing for many of our clients to understand. Given most consumers have no interest in ever being subpoenaed to an Arbitration Panel to defend their Agent, they would rather chew on nails than try to understand the exasperating world of Procuring Cause. From our perspective, it is much easier to keep an egg from getting scrambled than it is to try to unscramble an egg, and much more time efficient.

One might wonder, shouldn’t the Realtor® who did most of the work, showing the property, writing the offer, negotiating the offer, arranging the inspections, processing the closing and all of the other multitudes of tasks associated with a transaction, be entitled to the commission?

NO! The Realtor® entitled to the commission, I.E. Procuring Cause, is the Realtor® who did the KEY work that was the effective reason the Buyer chose to buy the property, I.E. make the offer on the property. (But… you must keep in mind that if an Arbitration Panel finds that the Buyer was estranged/abandoned by the Agent who did the KEY work, the panel would find for the second Broker as the Procuring Cause.)

Many times Realtors® feel that their agency relationship trumps Procuring Cause or that this is an integrated part or component of Procuring Cause. This could not be further from reality. The NAR manual holds that “…agency relationships are not synonymous with nor determinative of Procuring Cause. Representation and compensation are separate issues.”

Agency could be an issue if the Buyer has engaged an “Exclusive Buyer Broker Agreement” with a Realtor® and a subsequent Realtor® comes on the scene and, even after the Buyer tells the subsequent Realtor® of his/her “Exclusive Buyer Broker Agreement” with another Realtor®, chooses to continue to work with the Buyer, show the Buyer homes and subsequently writes an offer. This is a violation of the NAR Code of Ethics as the Code prohibits a Realtor® from interfering with an “Exclusive Agency Relationship” of another Realtor®.

One of the most annoying scenarios Lori and I encounter is a Buyer, flitting from Open House to Open House with a Realtor’s® business card in his/her hand. The Buyer enters the Open House and announces to the Realtor® holding the house open, “I’m working with a Realtor®. He/she told me to go out and look at homes and then give him/her a call when I found one.” At best this type of behavior on the part of the Business Card Realtor® demonstrates an “open” agency relationship. There is absolutely no Code of Ethics violation by the Realtor® who holds the house open, to try and sell the Buyer that property. NONE!

How can the Business Card Realtor® assert that he/she is doing his/her job? Where is the “Representation?” What protection does the Buyer have from knowing what he/she should or should not say in the presence of the Listing Agent? Remember, the operative words for proving Procuring Cause cases are, “…the Realtor® who did, and can prove, that he/she did the KEY work that caused the Buyer to come to a conclusion to make an offer and buy the property.”

However, remember too, if the Arbitration Panel determines that the first Realtor® abandoned the Buyer, then the second Realtor® would be the Procuring Cause.

I often hear Realtors® ask why they are not “Automatically” the Procuring Cause if they are the Agents who showed the home to a passerby Buyer who stopped into their “Open House”?

The reason is because the NAR professional standards policy and bylaws PROHIBIT any Association from developing or implementing any rule that would predetermine the outcome of an arbitration hearing. Therefore to make a statement that, because a Realtor® holds a house open presets Procuring Cause would be a violation of the National Association of Realtors professional standards policy and bylaws. But again, remember, the Arbitration Panel would have the duty to establish which Realtor® did the KEY work that caused the Buyer to make an offer on and buy that property.

Remember too, that merely finding the property, I.E. sending MLS datasheets to the Buyer or simply showing a property to the Buyer is not, in and of itself, grounds to sustain a claim of Procuring Cause. The end result and decision of an Arbitration Panel will be based on the Panel’s perception of who did the most work that caused the Buyer to make the decision to make the offer and purchase the property. One of the most important ingredients to defending a Procuring Cause action is to have all of your documentation in good order. Don’t make claims that are not cooperated by solid documentation. Your defense will go down in flames if you rely on “he said/she said” testimony. This is another reason to keep, not only a communication log, but a GREAT communication log. Notes scribbled on little pieces of paper will be your death. It is our opinion that Agents should distribute the final communication log to their office files and of course keep the original one for your personal file.

Here is a word of caution to all! Do not present yourself as a threat to the cooperating Broker/Agent. This could be considered intimidation. If the Listing Agent feels that he/she has clearly provided evidence of an unbroken chain of events, has not abandoned the Buyer and has done all of the heavy lifting “KEY work”, but for some inexplicable reason Realtor® number two comes upon the scene and threatens the Listing Agent with taking the Buyer elsewhere, this could, and in all likelihood would, end up as a Procuring Cause case. The Listing Agent and Broker would allow the transaction to close and then could file a complaint with the Arbitration Panel, and, if they could prove their case, would in all probability be awarded 100% of the commission earned. So, be careful what you say and how you act. Be professional.

What I find confuses Buyers the most is this question; “Why can’t I buy my house from the Agent I want to buy from?” The answer is, You Can! Unfortunately, Representation is not about compensation. The two don’t mix and this is where the biggest confusion rests for the consumer. Unless a clear case of Alienation exists, if the Realtor® who did the KEY work is not the Realtor® with whom the Buyer writes the offer to purchase, and if the “Key Work” Realtor® files a Procuring Cause claim against the subsequent Realtor®, there is a very good chance that an Arbitration Panel will rule that the “Key Work” Realtor® is the Procuring Cause and thus entitled to the compensation/commission.

If you are ever faced with a Procuring Cause action, remember that NONE of your defenses or the defenses of the other party should be about what took place after the offer was written and/or successfully negotiated to an agreement to purchase. The proof of Procuring Cause is in the preamble of the transaction. By that I mean, just because an Agent is managing inspections, responses to Buyer Inspection Notice and Seller’s Response forms, writing additional addenda or any of the myriads of tasks that go along with our responsibility to process a transaction, means NOTHING in establishing Procuring Cause. It’s all about “Who did the KEY work” the “Heavy Lifting”; who caused or most logically caused the Buyer to make a conscious decision to make an offer on and purchase the property.

Regarding compensation, it makes no difference whether or not a property is listed in the MLS system. If the Listing Agent makes an offer to pay compensation to a cooperating Broker, then there is an offer to pay compensation. Oddly enough the NAR Arbitration Manual does not even require the offer of commission to be in writing. Of course, in Arizona, the Statute of Frauds could find its way into a court room, but… remember, arbitration is not a court room and therefore the Statue of Frauds will, in all likelihood, not be part of the Panel’s equation in determining Procuring Cause or compensation owed/earned.

Finally, I have a suggestion to all Realtors® reading this article. If a Buyer asks you to show him/her a property that he/she has been shown by another Realtor® and subsequently wants to make an offer on that property, try to work out a commission agreement between the first Realtor® and yourself.

Most of the time the first Realtor®, assuming there is a potential for a Procuring Cause claim, will be happy to work out some form of equitable compensation. If you are uncomfortable with approaching the first Realtor® yourself, ask your Broker to have that discussion with the first Realtor® for you.

Be aware that asking the Buyer to write a note and have the note/letter notarized and sent to the first Realtor® is not a guarantee that you, the second Realtor® would prevail in Procuring Cause arbitration. Even if the Buyer sites all the reasons he/she chose to ask you to write the offer. Your fate in such a case truly rests with the Arbitration Panel and in your ability to produce absolute and clear details of why you were the KEY reason the Buyer made the offer to purchase that property. Even after all that effort, there is always a chance that the Arbitration Panel could find for the second Realtor® and award him/her Procuring Cause. You would have done all the work to get the transaction to and through the closing table for absolutely NO paycheck.

In my last example, if you feel there is a good chance that you would not prevail in a Procuring Cause fight, then… don’t represent the Buyer. Going through the process of an Arbitration Procuring Cause hearing is mentally draining as well as extremely time consuming.

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About Me

Lori & G-II are a husband and wife real estate team. They have been in this industry over 2 decades, as of 2008. One hundred percent (100%) of their business is generated from the Internet Empowered Consumer. They have helped clients all over the world buy and sell homes in the Phoenix, Arizona area. Our clients have originated from, Guam, Italy, Germany, Japan, England, Spain, Saudi Arabia and… even the good O’l USA.
Prior to entering the real estate profession, Lori was a paralegal for over 25 years. Lori practiced her prior trade with law firms from Chicago to Florida, finally exiting her old profession for a new life and career as a Realtor in 1988.
G-II is a practiced electro-mechanical engineer. Prior to entering the real estate profession, G-II was a quality assurance engineer, overseeing various components fabricated for the United States Department of Defense by independent sub contractors.
A side note about G-II’s name. He was christened “George Leo Robert Varrato II”. But… when he was growing up, his name was shortened, by his father, to G-II and he grew up with that tag name.
We are hopeful that you will find our Blog helpful & informative.